Riskier product portfolio under decoupled payments

Maurice Roche

European Review of Agricultural Economics, 2004, vol. 31, issue 2, 111-123

Abstract: The new payment regime for the European Union's Common Agricultural Policy adopted in June 2003 will decouple from production all direct payments made to farmers. The potential implications of this policy change for producers' land allocation decisions are analysed using a mean-variance portfolio optimisation framework. We demonstrate theoretically how the opportunity set of a farmer, which offers the highest return for a given risk, will be changed by the presence of a decoupled payment. The new policy will induce those farmers who choose to produce to allocate more land to riskier products than previously. As an illustration, we apply the model to the land allocation decisions facing specialist British and Irish grain producers. Copyright 2004, Oxford University Press.

Date: 2004
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European Review of Agricultural Economics is currently edited by Timothy Richards, Salvatore Di Falco, Céline Nauges and Vincenzina Caputo

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